Glossary and Abbreviations

A. SELECTED ACCOUNTS
1. Total assets refer to the sum of all assets, adjusted to net off the
accounts “Due from Head Office/Branches/Agencies” and “Due to
Head Office/Branches/Agencies” of foreign bank branches.
2. For purposes of computing the average, one period covers 12
months
a. Average assets refer to the sum of total assets for two
periods divided by 2.
b. Average capital refers to the sum of total capital accounts
for two periods divided by 2.
c. Average earning assets refer to the sum of earning assets
for two periods divided by 2.
d. Average interest-bearing liabilities refer to the sum of
interest-bearing liabilities for two periods divided by 2.
3. Total capital refers to the sum of paid-in capital of locally
incorporated banks, assigned capital and the qualified capital
allowable component of the net “Due To/Due From Head
Office/Branches/Agencies” accounts of branches of foreign banks
plus surplus, surplus reserves, undivided profits and appraisal
increment reserves.
4. Earning assets refer to the sum of loans (gross of allowance for
probable losses) and investments (gross of allowance for probable
losses), exclusive of equity investment (gross of allowance for
probable losses).
5. Fee-based income refers to the sum of bank commissions, service
charges/fees, and other fees/commissions.
6. Interest-bearing liabilities refer to the sum of deposit liabilities,
bills payable and unsecured subordinated debt.
7. Liquid assets refer to the sum of cash and due from banks and
investments (net of allowance for probable losses) exclusive of
equity investments (net of allowance for probable losses).
8. Net income before tax refers to the sum of net operating income
and extraordinary credits/(charges).
9. Net interest income refers to the difference between total interest
income and total interest expense.
10. Net operating income refers to the difference between operating
income and operating expenses.
11. Non-interest income refers to the sum of fee-based income,
trading income, trust department income and other non-interest
income.
12. Non-performing loans (NPL) refer to past due loan accounts
whose principal and/or interest is unpaid for thirty (30) days or more
after due date (applicable to loans payable in lump sum and loans
payable in quarterly, semi-annual or annual installments), including
the outstanding balance of loans payable in monthly installments
when three (3) or more installments are in arrears, the outstanding
balance of loans payable daily, weekly or semi-monthly installments
when the total amount of arrearages reaches ten percent (10%) of
 the total loan receivable balance, restructured loans which do not
meet the requirements to be treated as performing loans under
existing rules and regulations, and all items in litigation. Effective
September 2002, NPLs exclude loans classified as Loss in the latest
BSP examination which are fully covered by allowance for probable
losses and applicable to a bank with no unbooked valuation reserves
and other capital adjustments required by the BSP (Circular No.
351).
13. Non-performing assets (NPA) refer to the sum of non-performing
loans (NPL) and real and other properties owned and acquired
(ROPOA). Effective March 2003, NPAs exclude performing sales
contract receivable, which met certain requirements under Circular
No. 380.
14. Distressed assets refer to the sum of NPLs, ROPOA, gross and
current restructured loans. Starting July 2004, distressed assets
refer to the sum of NPLs, ROPOA, gross and performing restructured
loans.
15. Gross assets refer to total assets, net of reserves plus loan loss
reserves (LLR) plus provision for ROPOA.
16. Operating expenses refer to the sum of bad debts written
off/provisions for probable losses, overhead costs and other
expenses.
17. Operating income refers to the sum of net interest income and
non-interest income.
18. Overhead costs refer to the sum of non-loan related operating
expenses such as compensation/fringe benefits, depreciation and
amortization, etc.
19. Trading income refers to the sum of trading gains/(losses),
foreign exchange profits/(losses), gold trading gains/(losses)
and profit/(loss) on sale of redemption of investments.

B. FINANCIAL AND OTHER RATIOS

1. Capital adequacy ratio (CAR) refers to the ratio of capital to risk
weighted assets computed in accordance with the risk-based capital
adequacy framework (patterned after the 1988 Basel Capital
Accord) that took into account credit risks, effective 1 July 2001
under BSP Circular No. 280 dated 29 March 2001. Under BSP
Circular No. 360 dated 3 December 2002, which took effect 1 July
2003, applying only to universal/commercial banks, computation of
CAR incorporates market risks in addition to credit risks.
2. Cost-to-income ratio refers to the ratio of operating expenses
(exclusive of bad debts written off/provisions for probable losses) to
operating income.
3. Density ratio refers to the ratio of the total number of domestic
banking offices to the total number of cities/municipalities in the
Philippines.
4. Distressed assets ratio refers to the ratio of distressed assets to
total loans (gross of allowance for probable losses), inclusive of
interbank loans, plus ROPOA, gross
 5. Earning asset yield refers to the ratio of total interest income to
average earning assets.
6. Funding cost refers to the ratio of total interest expense to
average interest-bearing liabilities.
7. Interest spread refers to the difference between earning asset
yield and funding cost.
8. Liquid assets ratio refers to the ratio of liquid assets to total
deposits.
9. Net interest margin refers to the ratio of net interest income to
average earning assets.
10. NPA coverage ratio refers to the ratio of allowance for probable
losses on non-performing assets (NPA) to total NPA.
11. NPA ratio refers to the ratio of NPA to total assets, gross of
allowance for probable losses.
12. NPL coverage ratio refers to the ratio of allowance for probable
losses on non-performing loans (NPL) to total NPL.
13. NPL ratio refers to the ratio of non-performing loans (NPL) to total
loans (gross of allowance for probable losses), inclusive of interbank
loans.
14. Population-to-banking offices ratio refers to the ratio of the
total population to the total number of domestic banking offices.
15. Return on assets refers to the ratio of net income after tax (NIAT)
to average assets.
16. Return on equity refers to the ratio of NIAT to average capital.
******************

NPL: Alternative term for non-accrual loan.

coverage ratio

Definitions (2)

1. Banking: Measure of a bank'sability to absorb potential losses from its

non-performing loans. Formula: (Loans - Reserve balance)/Total amount of
non-performing loans.

2. Finance: Balance sheetvalue of a liability compared with the

firm'sability to pay.

NPL ratio refers to the ratio of non-performing loans (NPL) to total loans
(gross of allowance for probable losses), inclusive of interbank loans.

NPL coverage ratio refers to the ratio of allowance for probable losses on
non-performing loans (NPL) to total NPL.

Debt coverage ratio

The relationship between Net Operating Income (NOI) and Annual Debt
Service (ADS).Often used as an Underwriting criterion for Income Property
mortgage loans.
Example: Annual debt service for a mortgage loan on a certain office
building is $10,000. The property generates $25,000 in annual gross rent,
and requires $7,000 for expenses of operation, leaving $18,000 net
operating income. The debt coverage ratio is 1.80, calculated by the
following formula:
NOI = $18,000 = 1.8
ADS $10,000
*******************
LOAN TERMS

Assets
Anything of value.Any interest in real or personal
property which can be appropriated for the payment of
debt.

Bad Debt
A debt that is not collectible and is therefore worthless
to the creditor.

Balance Sheet
Financial statement presenting measures of the assets,
liabilities and owner's equity or net worth of business
firm or nonprofit organization as of a specific moment in
time.

Bridge Loan
Short-term loan to provide temporary financing until
more permanent financing is available.

Business Plan
A document that describes an organization's current
status and plans for several years into the future. It
generally projects future opportunities for the
organization and maps the financial, operations,
marketing and organizational strategies that will enable
the organization to achieve its goals.

Capital
Broadly, all the money and other property of a
corporation or other enterprise used in transacting its
business.

Capitalization
Long-term debt, preferred stock and net worth. The loan
capital of a community development loan fund; includes
that which has been borrowed from and is repayable to
third parties as well as that which is earned or owned by
the loan fund (i.e. "permanent capital").

Capital Markets
Those financial markets, including institutions and
individuals, that exchange securities, especially long-
term debt instruments.

Cash Flow Financing

 Short-term loan providing additional cash to cover cash
shortfalls in anticipation of revenue, such as the
payment(s) of receivables.

Collateral
Assets pledged to secure the repayment of a loan.

Covenant
An agreement or promise to do or not to do a particular
thing; to enter into a formal agreement; a promise
incidental to a deed or contract. The following are
functional objectives guiding most covenants: full
disclosure of information, preservation of net worth,
maintenance of asset quality, maintenance of adequate
cash flow, control of growth, control of management,
assurance of legal existence and concept of going
concern, provision for lender profit or program goals.

Current Asset
Assets that will normally be turned into cash within a
year.

Current Liability
Liability that will normally be repaid within a year.

Current Ratio
Current assets divided by current liabilities -- a measure
of liquidity. Generally, the higher the ratio, the greater
the "cushion" between current obligations and a firm's
ability to meet them.

Debt
An amount owed for funds borrowed. The debt may be
owed to an organization's own reserves, individuals,
banks, or other institutions. Generally, the debt is
secured by a note, bond, mortgage, or other instrument
that states repayment and interest provisions. The note,
in turn, may be secured by a lien against property or
other assets.

Debt Service
Amount of payment due regularly to meet a debt
agreement; usually a monthly, quarterly or annual
obligation.

Debt Service Reserve

Term used to refer to cash reserves set aside by a
borrower, either by internal policy or lender covenant, to
repay debt in the event that cash generated by
operations is insufficient.

Default
A failure to discharge a duty. The term is most often
used to describe the occurrence of an event that cuts
short the rights or remedies of one of the parties to an
agreement or legal dispute, for example, the failure of
the mortgagor to pay a mortgage installment, or to
comply with mortgage covenants.
Delinquent
In a monetary context, something that has been made
payable and is overdue and unpaid,

Due Diligence
Refers to the task of carefully confirming all critical
assumptions and facts presented by a borrower. This
includes verifying sources of income, accuracy of
financial statements, value of assets that will serve as
collateral, the tax status of the borrower and any other
material facts presented by the borrower.

Endowment or Trust
A fund that contains assets whose use is restricted only
to the income earned by these assets.

Equity
The value of property in an organization greater than
total debt held on it. Equity investments typically take
the form of an owner's share in the business, and often,
a share in the return, or profits. Equity investments
carry greater risk than debt, but the potential for greater
return should balance the risk.

Equity Participation
An ownership position in an organization or venture
taken through an investment. Returns on the
investment are dependent on the profitability of the
organization or venture.

Fund Balance
Net worth in a nonprofit organization; total assets minus
total liabilities.

General Recourse
Rights to demand payment from the general assets of
the debtor, without seniority in access to any specific
assets.

Guaranteed Loan
A pledge to cover the payment of debt or to perform
some obligation if the person liable fails to perform.
When a third party guarantees a loan, it promises to pay
in the event of a default by the borrower.

Interim Financing
Short-term loan to provide temporary financing until
more permanent financing is available.

Intermediaries
Non- or for-profit institutions that have specialized
lending capacities. They obtain capital in the form of
equity and low interest loans from a variety of sources,
including foundations and other funders, to form a
"lending pool." They then serve as "wholesalers" who
process large numbers of small loans or investments.
This "economy of scale" often allows intermediaries to
 be more efficient than a foundation or funder could be if
it considered each investment individually. Also,
intermediaries often develop expertise in a particular
field or region that foundations or funders cannot afford
to develop. In the context of this study, non-financial
intermediaries include community foundations and
financial intermediaries include credit unions, venture
capital and loan funds, banks, etc.

Leverage
Using long-term debt to secure funds for an
organization. In the social investment world, often refers
to financial participation by other private, public or
individual sources.

Liabilities, Total Liabilities

Total value of financial claims on a firm's assets. Equals
total assets minus net worth.

Limited Liability
Limitation of shareholders' losses to the amount
invested.

Limited Recourse
Rights only to specifically stipulated assets to satisfy an
unpaid debt.

Line of Credit
Agreement by a bank that a company may borrow at
any time up to an established limit.

Linked Deposit
A deposit in an account with a financial institution to
induce that institution's support for one or more
projects. By accruing no interest or low interest on its
deposit, a foundation essentially subsidizes the interest
rate of the project borrowers.

Loan Agreement
A written contract between a lender and a borrower that
sets out the rights and obligations of each party
regarding a specified loan.

Loss Reserves
That portion of a fund's earnings or permanent capital
designated by the board of directors as a reserve
against possible loan losses and, as such, unavailable
for lending purposes. Generally accepted accounting
principles governing for-profit and regulated financial
institutions require that loan loss expense be deducted
as an annual expense on an accrual basis and that the
loan loss reserve be shown as a contra asset reducing
loan assets. To date, no accounting convention has been
established to govern loan loss reserve accounting for
unregulated nonprofit institutions. The technical
treatment is to establish the reserve through periodic
charges against earnings, and actual losses, when and if
 incurred, and are charged against the reserve. For
balance sheet purposes a loan loss reserve (should) be
shown as a deduction from the loan portfolio to suggest
that its true economic value should be reduced by the
estimated loss exposure.

Market Rate
The rate of interest a company must pay to borrow
funds currently. Program-related investments generally
are offered at below market rates or at no interest rate.

Negative Covenants
Statements of actions or events of the borrower must
prevent from occurring or existing, for example,
additional borrowing without the lender's consent.

Net Working Capital

Current assets minus current liabilities.

Net Worth (Fund Balance in nonprofit. organizations)

Total assets minus total liabilities.Aggregate net value of
the organization.

Opportunity Cost
The potential benefit that is foregone from not following
the best (financially optimal) alternative course of
action.

Portfolio
A combination of assets held for its investment benefits,
including financial and non-financial returns. The asset
mix is usually varied in kind and size to maintain an
acceptable level of risk and return.

Principal
In commercial law, the principal is the amount that is
received, in the case of a loan, or the amount from
which flows the interest.

Program-Related Enterprise
A business or enterprise designed to promote the social
purpose goals of an organization as well as generate
revenue. Among nonprofits, products and services are
usually, but not exclusively, identified with the purpose
of the organization. Activities can range from fee-for-
service charges to full-scale commercial ventures.

Program-Related Investment
Broad, functional definition: A method of providing
support to an organization, consistent with program
goals involving the potential return of capital within an
established time frame. In the context of this study,
program-related investments include loans, loan
guarantees, equity investments, asset purchases or the
conversion of asset(s) to charitable use, linked deposits,
and, in some cases, recoverable grants.

Promissory Note
 Promise to pay. Written contract between a borrower
and a lender that is signed by the borrower and provides
evidence of the borrower's indebtedness to the lender.

Receivables
Accounts receivable; an amount that is owed the
business, usually by one of its customers as a result of
the ordinary extension of credit,

Recourse
Refers to the right, in an agreement, to demand
payment from the person who is taking on an obligation.
A full recourse loan refers to the right of the lender to
take any assets of the borrower if repayment is not
made. A limited recourse loan only allows the lender to
take assets named in the loan agreement. A non-
recourse loan limits the lender's rights to the particular
asset being financed -- an approach that is common in
home mortgages and other real estate loans.

Recoverable Grants
Funds provided by a philanthropist to fulfill a role similar
to equity. A recoverable grant may include an
agreement to treat the investment as a grant if the
enterprise is not successful, but to repay the investor if
the enterprise meets with success.

Restructure
A revision of a financial agreement that alters the
conditions or covenants of the original agreement. For
example, parties may agree to restructure a loan
agreement, easing the payment schedule, when a
borrower is delinquent or otherwise faces default on a
loan.

Roll Over
Prior to or at the time of the maturity of an investment
or loan, the interested parties agree to continue to carry
over the investment or loan for another, successive
period of time.

Security
A pledge made to secure the performance of a contract
or the fulfillment of an obligation. Examples of securities
include real estate, equipment stocks or a co-signer.
Mortgages are a form of security with strong legal
standing, because they are publicly registered following
a formal legal procedure. A mortgage gives the lender
holding a mortgage security the right to reclaim the
asset being financed, if repayment is not made.

Senior Debt
Debt that must be repaid before subordinated debt
receives any payment in the event of default.

Subordinated Debt (Junior Debt)

 Debt over which senior debt takes priority. In the event
of bankruptcy, subordinated debt-holders receive
payment only after senior debt is paid in full. A
subordination of security interest in property allows
another creditor to have the rights to the proceeds of
the sale of that property before the claim of the
subordinated creditor.

Term
Refers to the maturity or length of time until final
repayment on a loan, bond, sale or other contractual
obligation.

User
A non- or for-profit entity that receives a program-
related investment directly from a funder for use in its
programs or ventures.

Warranties
Statement attesting that certain statements are true.
For instance, the borrower may warrant that it is a
corporation, that it is entering into the agreement
legally and that financial statements supplied to the
bank are true.

Working Capital
Technically, means current assets and current liabilities.
The term is commonly used a synonymous with net
working capital. The term often also is used to refer to
all short-term funding needs for operations (excluding
debt service and fixed assets). A company's investment
in current assets that are used to maintain normal
business operations. Net working capital, which is the
excess of current assets over current liabilities is also
interchangeable with working capital. Both reflect the
resources in circulation to meet operating needs and
obligations as they come due.

Write off
When an investment, such as a loan, becomes seriously
delinquent or in default and is determined to be
uncollectible, the lender may choose to charge the
outstanding investment amount as an expense or a loss.
**************************

About the Loan Process

Pre-Qualification
Pre-qualification occurs before the loan process actually begins, and is
usually the first step after initial contact is made. The lender gathers
information about the income and debts of the borrower and makes a
financial determination about how much house the borrower may be able
to afford. Different loan programs may lead to different values, depending
on whether you are qualified for them, so be sure to get a pre-qualification
for each type of program you are suited for.
Application
The application is actually the beginning of the loan process and usually
occurs between days one and five of the loan. The buyer, now referred to
as a "borrower", completes a mortgage application with the loan officer
and supplies all of the required documentation for processing. Various
fees and down payments are discussed at this time and the borrower will
receive a Good Faith Estimate (GFE) and a Truth-In-Lending statement
(TIL) within three days that itemizes the rates and associated costs for
obtaining the loan.

Processing
Processing occurs between days 5 and 20 of the loan. The "processor"
reviews the credit reports and verifies the borrower's debts and payment
histories as the VODs and VOEs are returned. If there are unacceptable
late payments, collections for judgment, etc., a written explanation is
required from the borrower. The processor also reviews the appraisal and
survey and checks for property issues that may require further
discernment. The processor's job is to put together an entire package that
may be underwritten by the lender.

Underwriting
Lender underwriting occurs between days 21 and 30 or sooner. The
underwriter is responsible for determining whether the combined package
passed over by the processor is deemed as an acceptable loan. If more
information is needed, the loan is put into "suspense" and the borrower is
contacted to supply more documentation.

Mortgage Insurance
Mortgage insurance underwriting occurs when the borrower has less than
20% of the loan amount to put towards a down payment. At this time, the
loan is submitted to a private mortgage guaranty insurer, who provides
extra insurance to the lender in case of default. As above, if more
information is needed the loan goes into suspense. Otherwise it is usually
returned back to the mortgage company within 48 hours.

Pre-Closing
Pre-Closing occurs between days 25 and 30. During this time the title
insurance is ordered, all approval contingencies, if any, are met, and a
closing time is scheduled for the loan.

Closing
Closing usually occurs between days 25 and 45 of the loan (depending
upon the designated length of your escrow). At the closing, the lender
"funds" the loan with a cashier's check, draft or wire to the selling party in
exchange for the title to the property. This is the point at which the
borrower finishes the loan process and actually buys the house.
**********************************

Indian Banking system has brought the NPAs under control in a very
systematic manner over a period of 15 years between 1993 and 2008 in a
gradual manner in compliance with RBI Guidelines and attaining
international standards. Several legal changes like DRTs, BIFR,
CDR(corporate debt restructuring, LokAdalat, Compromise Settlements,
One Time Settlements and Write Offs, as also SARFAESI Act have
strengthened the hands of bankers in the process.

What are the Debts Recovery Tribunals?

The Debts Recovery Tribunals have been established by the
Government of India under an Act of Parliament (Act 51 of 1993)
for expeditious adjudication and recovery of debts due to banks
and financial institutions.
Top
Who can file cases before the DRTs?
Where a bank or financial institution has to recover any debt
from any person, it makes an application called Original
Application (OA) to the Tribunal against such person.
Top
What are the functions and procedure of the DRTs?
The DRTs function under the provisions of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 and as per the
Debts Recovery Tribunal (Procedure) Rules, 1993.
Top
What is the pecuniary jurisdiction of the DRTs?
The provisions of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 shall not apply where the amount
of debt due to bank or financial institution or to a consortium of
banks or financial institutions is less than ten lakhs rupees or
such other amount, being not less than one lakh rupees, as the
Central Government may, by notification, specify.
Brief Introduction of BIFR and its functioning
In the wake of sickness in the country’s industrial climate
prevailing in the eighties, the Government of India set up in 1981,
a Committee of Experts under the Chairmanship of ShriT.Tiwari to
examine the matter and recommend suitable remedies therefore.
Based on the recommendations of the Committee, the
Government of India enacted a special legislation namely, the
Sick Industrial Companies (Special Provisions) Act, 1985 (1 of
1986) commonly known as the SICA.
The main objective of SICA is to determine sickness and expedite
the revival of potentially viable units or closure of unviable units
(unit here in refers to a Sick Industrial Company). It was expected
that by revival, idle investments in sick units will become
productive and by closure, the locked up investments in unviable
units would get released for productive use elsewhere.
The Sick Industrial Companies (Special Provisions) Act, 1985
(hereinafter called the Act) was enacted with a view to securing
the timely detection of sick and potential sick companies owning
industrial undertakings, the speedy determination by a body of
experts of the preventive, ameliorative, remedial and other
measure which need to be taken with respect to such companies
and the expeditious enforcement of the measures so determined
and for matters connected therewith or incidental thereto.
The Board of experts named the Board for Industrial and Financial
Reconstruction (BIFR) was set up in January, 1987 and functional
with effect from 15th May 1987. The Appellate Authority for
Industrial and Financial Reconstruction (AAIRFR) was constituted
in April 1987. Government companies were brought under the
purview of SICA in 1991 when extensive changes were made in
the Act including, inter-alia, changes in the criteria for
determining industrial sickness.
SICA applies to companies both in public and private sectors
owning industrial undertakings:-
(a) pertaining to industries specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951, (IDR Act)
except the industries relating to ships and other vessels drawn by
power and;
(b) not being "small scale industrial undertakings or ancillary
industrial undertakings" as defined in Section 3(j) of the IDR Act.
(c) The criteria to determine sickness in an industrial company
are (i) the accumulated losses of the company to be equal to or
more than its net worth i.e. its paid up capital plus its free
reserves (ii) the company should have completed five years after
incorporation under the Companies Act, 1956 (iii) it should have
50 or more workers on any day of the 12 months preceding the
end of the financial year with reference to which sickness is
claimed. (iv) it should have a factory license.
Corporate debt restructuring occurs when a company is in a financial crisis
and cannot pay its present and perhaps short term future credit
responsibilities. In a case such as this, the company looks for ways to
spread out its credit obligations with smaller repayment amounts and a
longer time with which to pay off obligations. It is, in many ways the
equivalent of a chapter thirteen filing for individuals and families. if a
business does not want to file chapter eleven, which is a rehabilitation
bankruptcy, corporate debt restructuring plans are the most widely
accepted way of dealing with cash flow issues. In many cases, even if a
company's creditors do not like the plan the company offers to defer
credit repayments, a court may find the plan acceptable and therefore the
creditors must abide by the plan. Making the decision to make over a
firm's borrowing agreements is an admission that things are not going
well.

A corporation may begin its corporate debt restructuring plan by seeking

the lowering of interest rates on its present debts. Just as a homeowner
might seek a new mortgage when he can save a percentage and a half or
more on a current mortgage he holds, a company can do the same thing if
the loan markets are right for making such a move. For a company, even
a quarter of a point or a half a point on a hundred million dollar loan could
be the difference between continuing business and closing its doors. In
addition to perhaps cutting its workforce, its advertising and production
costs, a company saving a million dollars a year on interest payments
may be able to survive the roughest of financial weather. The problem
comes in convincing the creditors to agree to less money at the moment.
Another way that a company may attempt to save itself from chapter
eleven actions is to attempt to stretch its obligations out over a longer
period of time. This action would be much like a car buyer getting a
seventy two month loan instead of a thirty six month loan. More interest is
paid, but the monthly outlay is smaller. The smaller the debt repayments,
the more a company will have to put back into shoring up its weak
business position. Corporate debt restructuring can provide creative ways
of refinancing debt much the way home buyers who want to get into
larger homes than they really can afford might use. Creditors of a
company seeking debt restructuring might agree to a balloon payment at
the end of ten years with much smaller monthly debt repayments each
month or each year until those ten years are up. Or perhaps the time
period might be five years or three years, depending on the needs of the
company and the mood of the creditors.

If a company does seek corporate debt restructuring and first goes

directly to its creditors, there may be an agreement to a solution or not.
The next step for a company that cannot find relief from a personal
encounter with a creditor is to present its plan to the judicial system. In
that case, the court may end up deciding in favor of the company's
original plan or may devise a plan of its own. But in any case, the court
will appoint an overseer, often called a trustee, to observe and even
manage the plan's unfolding and implementation. The bottom line is an
outsider will be poking around the company's formerly private business
and watching with great interest the court's plan being used. So before a
corporate debt restructuring plan is actually proposed, a flailing company
may hire an outside management company to come in and study the
company and make changes that can head off the drastic step of actually
going to creditors.

There are companies that are ready to help craft a corporate debt
restructuring plan for companies on the edge of falling over. Oftentimes
these crises that companies face are brought on by poorly managed day
to day operations. In this case, there are firms ready to move in and
totally revamp a floundering business's organization from the ground up.
These companies can offer the setting of new and realistic business plans,
become the middlemen between creditors and current company
executives, provide stockholders with up to date restructuring
information, examine and realize where the company is not getting as
much value from its efforts as it should be and many other issues. For the
troubled company executive there is hope from God's Word. "But my God
shall supply all your need according to his riches in glory by Christ Jesus."
(Philippians 4:19)

In many cases, the best answer for a drowning company may not be
corporate debt restructuring, but rather a merger with another company.
In fact, troubled companies often become the target of takeover
ambitions by other healthy companies. If a company is public and the
stockholders are screaming for some outside company to come in and buy
out the troubled company, there often can be little the embattled
company can do but give in to the merger idea. And sometimes, along
with borrowing restructuring can come the practice of divestiture which
means that the company actually sells off part of its business to another
firm or company in order to keep its most profitable operations going. In
any of the cases that have been discussed, these business decisions can
bring pain to a lot of people including the families of the workers affected.

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SARFAESI Act
The Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks /
Financial Institutions to recover their non-performing assets without the
intervention of the Court. The Act provides three alternative methods for
recovery of non-performing assets, namely: -
• Securitisation

• Asset Reconstruction

• Enforcement of Security without the intervention of the Court

The provisions of this Act are applicable only for NPA loans with
outstanding above Rs. 1.00 lac. NPA loan accounts where the amount is
less than 20% of the principal and interest are not eligible to be dealt with
under this Act.
Non-performing assets should be backed by securities charged to the
Bank by way of hypothecation or mortgage or assignment. Security
Interest by way of Lien, pledge, hire purchase and lease not liable for
attachment under sec.60 of CPC, are not covered under this Act
The Act empowers the Bank:
• To issue demand notice to the defaulting borrower and guarantor,
calling upon them to discharge their dues in full within 60 days from
the date of the notice.

• To give notice to any person who has acquired any of the secured
assets from the borrower to surrender the same to the Bank.

• To ask any debtor of the borrower to pay any sum due or becoming
due to the borrower.

• Any Security Interest created over Agricultural Land cannot

be proceeded with.
If on receipt of demand notice, the borrower makes any representation or
raises any objection, Authorised Officer shall consider such representation
or objection carefully and if he comes to the conclusion that such
representation or objection is not acceptable or tenable, he shall
communicate the reasons for non acceptance WITHIN ONE WEEK of
receipt of such representation or objection.
A borrower / guarantor aggrieved by the action of the Bank can file an
appeal with DRT and then with DRAT, but not with any civil court. The
borrower / guarantor has to deposit 50% of the dues before an appeal
with DRAT.
If the borrower fails to comply with the notice, the Bank may take
recourse to one or more of the following measures:
• Take possession of the security
• Sale or lease or assign the right over the security
• Manage the same or appoint any person to manage the same
**************
A non-performing loan is a loan which is either in default, or is about to be, with a reasonable expectation that the
loan will enter default even though it has not technically defaulted yet. As a general rule, banks like to avoid non-
performing loans, because there is a risk that they will not be able to recover the principal left on the loan, let alone
the interest which has accrued. This type of loan is also sometimes known as a non-accrual loan or simply a doubtful
loan.
The terms under which a loan can be described as non-performing vary. The basic rule of thumb is that if no payments
on the interest or principal have been received for 90 days, it is a non-performing loan. If special arrangements have
been made to refinance or delay payments and there is reasonable doubt that the debtor will be able to repay the loan,
the loan can also be considered non-performing even if the 90 day period has not elapsed.
Once a loan has been classified as non-performing, the lender can start to take steps to recover the principal. In the
case of a loan which has been backed by an asset, the asset can be seized. The classic example of this is a home
foreclosure, in which the bank takes the home which backs a loan and sells it to another buyer to recover the amount
of the non-performing loan which is still outstanding. Another example might be a car repossession, in which a non-
performing car note is made good by taking the car back and selling it to another buyer.
Banks can also utilize collection services in an attempt to collect on a non-performing loan. The measures which can
be taken by such services vary, depending on where they operate and the type of the loan. Sometimes, the bank may
be willing to make arrangements with the borrower to put the loan into forbearance to to provide other assistive
measures to help the borrower get back on track with repaying the loan, as this can be less costly than the steps needed
to collect on the loan by other means.
Asset Loan
Non-performing Loan
Nonperforming Loans
Investment Loan
Capital Loan
Working Capital Loan
Financial Loan
Non-performing loans look bad on the bank's books. Banks want to be able to document a steady flow of incoming
payments on outstanding loans. If the non-performing loan component of a bank's loan portfolio starts to climb too
high, it can trigger concerns that the bank will not be able to remain solvent.